Benefits for working families, such as tax credits, could be slashed to save up to £5billion in George Osborne’s (pictured) emergency Budget

Benefits for working families could be slashed to save up to £5billion in George Osborne’s emergency Budget.

Tax credits could be reduced sharply as part of efforts to cut welfare spending by £12billion and eliminate the deficit.

The proposal has sparked a furious government row, with the Chancellor under pressure to instead slow the pace of cuts and reduce the impact on working families.

Election pledges not to cut child benefit and protect pensioner benefits means the cuts must fall on the main unprotected parts of the Department for Work and Pensions budget.

These are the £30billion spent on tax credits, the £20billion on housing benefit and £25billion on disability benefits.

Yesterday the government’s economic watchdog, the Office For Budget Responsibility, pointed out Britain spends more on so-called ‘family benefits’ including tax credits than other developed countries.

Spending on tax credits has doubled as a proportion of national income since 2002. Overall, family benefits amount to 4 per cent of GDP, more than Germany, France, the US and even the Nordic countries.

Their value rose further under Gordon Brown and continued to go up during the recession and even in the first year of the coalition government. Critics of tax credits say they are used by employers as an excuse to pay low wages.

But some Tories fear cuts to tax credits will be seen as an attack on the working poor, at a time when the party is trying to remodel itself as the champion of working people.

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A report by BBC2’s Newsnight claimed child tax credit and working tax credit could be rolled back to levels last seen in 2003.

Child Tax Credits are a benefit paid to a families on low incomes. Those with two children are eligible with a combined income under £32,200, with one child the threshold is up to £26,000.

Some Tories fear large cuts to tax credits will be seen as an attack on the working poor (file picture)

Former home office minister Damian Green told the programme: ‘This is clearly one of the options in front of ministers.

‘The scale of the cuts, it is quite big. They are necessary. But we had an election a month ago on the basis of doing this so I don’t think people can really complain that ministers are looking at the options to do this.’

Mr Green added: ‘What tended to happen was that companies were enabled to keep wages very low because their workers were having their wages topped up by the taxpayer.

‘It’s much more sensible for people to earn a reasonable wage from the company they are working for so they don’t need this extra money from the state.